Failed Venture Explains a Lot About In-Store Ads

Why a $40 Million Investment Didn't Pay for Videocart

COLUMBUS, Ohio (AdAge.com) -- In 1988, John Malec applied for a patent for an "intelligent shopping-cart system" dubbed Videocart. The device "would respond to trigger signals from transmitters in specified locations and then display advertising associated with the respective location," according to patent No. 5,295,064.

In other words, an ad for Brawny could be triggered in the paper aisle or an ad for Huggies in the diaper aisle. Sounds brilliant, but 18 years later, we're still not there yet.

Despite all the talk about the power of in-store advertising and the oft-touted statistic that 70% of purchasing decisions are made in the store, the fact is, no one has truly figured it out yet. Amid all the hoopla, it's worth rehashing the story of Videocart.

Mr. Malec wasn't just some naive entrepreneur. He already had two major career successes: He was co-founder of the respected consumer research firm NPD Group, and in 1978, he sold his stake in NPD and plowed those earnings into launching Information Resources Inc., a pioneer in data collection at retail via cash register scanners. IRI made millions, and so did Mr. Malec.

He saw green in the demand from marketers for a way to get in front of shoppers in the store and spent years dreaming up Videocart. Mr. Malec believed so much in the potential of his invention that he left his position as chairman-CEO of IRI to focus all his energies and money on it.

At Videocart's peak in 1992, 46,000 shopping carts were fitted with the displays in retailers such as Schnucks in St. Louis. Just one year later, though, Mr. Malec left the company and by 1994, Videocart had filed for bankruptcy.

So why did it fail? "The labor issue was a killer," Mr. Malec said.

You can't plug a shopping cart into an electrical outlet, and the batteries on the device needed to be charged frequently. "Customers were pushing around this thing and it was not doing anything," he said.

Then there's the often-overlooked issue of paper-thin margins in the grocery industry. "To make anything work, you have to go to the retail grocer, who is used to pounding pennies out of the likes of P&G. It's tough to make a living there," he said.

Mr. Malec admits RFID could be the missing link that would make in-store advertising work. But at age 61, he remains skeptical anyone can create a delivery system that's cheap enough. "It's simply too complicated a proposition," he said.

It's a hard-earned point of view as the hyperbole around the potential of in-store advertising grows. After all, he estimates the company burned through nearly $40 million -- a "good chunk of it" his own. "I earned enough money [at IRI] to lose it all in Videocart," Mr. Malec said, notably without bitterness.